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BARC Barclays Plc

183.20
1.68 (0.93%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Barclays Plc LSE:BARC London Ordinary Share GB0031348658 ORD 25P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  1.68 0.93% 183.20 183.48 183.52 185.68 182.82 183.32 54,715,683 16:35:20
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Commercial Banks, Nec 25.38B 5.26B 0.3470 5.29 27.81B

Cost of Borrowing Cash Overnight in Exchange for U.S. Treasurys Spikes

01/04/2015 12:00am

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By Katy Burne 

The cost of borrowing cash overnight in exchange for U.S. Treasurys spiked on Tuesday to the highest level since the financial crisis, the latest sign that securities dealers are being squeezed by changes in short-term debt markets.

The cash-for-Treasurys trades, known as repurchase agreements, or repos, are short-term loans in which government bonds or other high-quality securities are used as collateral.

Dealers, including banks and independent firms, use the cash they get in repos to finance their day-to-day operations. They also stand as middlemen on the trades, matching lenders such as money-market funds with borrowers who need financing, such as hedge funds.

The repo market has been subject to increased regulatory scrutiny since the demise in 2008 of Bear Stearns Cos. and Lehman Brothers Holdings Inc., which were presaged by difficulties in the short-term financing markets.

In recent months, new regulations have caused dealers to dial back their presence in low-margin businesses like repos, notably at quarter-end, analysts and traders said. That is creating a bottleneck in the repo market, which has long greased trading in a range of other bonds.

On Tuesday, interest rates on overnight repos backed by U.S. Treasury debt averaged 0.50%, according to prices from broker ICAP PLC. That was the highest since November 24, 2008, when it spiked to 0.59%, the ICAP i-Repo index shows, and was up from a recent high of 0.26%.

The repo cutbacks by dealers have been especially prominent at quarter end, because that is when they and others seek to reduce bondholdings for regulatory-reporting reasons. While the cost of repo borrowing has risen at the end of previous quarters, the jump seen Tuesday was especially sharp.

"We have seen escalating distortions on month-end and particularly quarter-end dates because of new capital regulations and balance-sheet constraints," said Lou Crandall, chief economist at Wrightson ICAP.

Garrett Sloan, fixed-income market strategist at Wells Fargo Securities LLC, said banks likely were paying up to access the repo market on Tuesday, because in that market they can cancel out, or net, down their positions in repos for complying with the capital rules.

Repo rates for investors like hedge funds also were elevated on Tuesday, he said, rising to 0.12% to 0.15% from 0.10% to 0.12% for the remainder of March.

The pullback in bank repo books at the end of this month left participants who needed to borrow cash "with few options--and those options are expensive," said Joseph Abate, money-markets analyst at Barclays PLC.

The Federal Reserve offers an alternative repo program to help alleviate pressures in repos when banks are repositioning their books. Tuesday's Treasury-backed overnight repo rate was the largest premium over that Fed program rate since testing of the program began in September 2013, said Abate.

Tuesday's Fed overnight repo program drew $202.2 billion of orders, according to data from the Federal Reserve Bank of New York. That is up from $171.12 billion of overnight repos on Dec. 31.

There are now $378.5 billion in repos outstanding in the Fed's program, on par with the $396.7 billion as of year-end.

Write to Katy Burne at katy.burne@wsj.com

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